The Ascent of Money - Niall Ferguson

The Ascent of Money - Niall Ferguson

Understand the fundamental details about global economic development, unraveling its roots and history, from the emergence of money to the present day.

Have you ever wondered what is the real interference of money in our lives? Have you ever wondered why our society is so affected by economic issues? Niall Ferguson explains all the concepts through this world in the book "The Ascent of Money".

There are currently no societies totally excluded from commercial relations, whatever their extent.

In this summary, we will learn about the fundamental details of global economic development, understanding that there is a connection between it and the financial problems we face today.

Got interested to know more about? Stay with us in this summary!

About the book "The Ascent of Money"

"The Ascent of Money" is an essay by author Niall Ferguson which was The New York Times bestseller and has received adaptation for BBC television documentary.

The book has 6 chapters, divided into subchapters, in which the author discusses some of the areas understood by the problems already pointed out in the book's title.

The author defends monetary and banking developments as the hallmark of civilization.

About the author Niall Ferguson

A specialist in financial and economic history, Niall Ferguson is a political commentator, defined as a neoconservative. Born in Glasgow, Scotland, he studied at Magdalen College and Oxford. He teaches at Harvard, Oxford, and Stanford.

Most of his books have become bestsellers and have been adapted for television documentaries. Its written language is suitable for laypeople and experts.

To whom is this book indicated?

"The Ascent of Money" is recommended for all economists and scholars on finance and economics.

It can also be of great contribution to professionals in the field of historiography, administration, political science, and international relations as a source of research, analysis, and criticism.

Main ideas of the book "The Ascent of Money"

  • The need for money was built over time;
  • Money has value only when someone is willing to give something for it;
  • Money is a matter of trust;
  • Bankruptcy arises as an exploratory method and distinction of power;
  • With industrialization, the number of banks has grown absurdly (and this rapid growth has led to crises);
  • We are affected in one way or another by the bond market;
  • The bond market directly influences government policy;
  • The stock market creates bubbles that can burst at any time;
  • The stock exchange and the stock market have all but emerged together;
  • The insurance market is flawed and inefficient. It developed much more with mathematical than commercial influence;
  • A steady balanced income is the only true security.

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[Book Summary] The Ascent of Money - Niall Ferguson

Overview: Greed Dreams

Niall Ferguson begins by talking about the need for money as something built with time and culture. The lack of money goes back to a primitive and subsistence life.

To put it in context, the author discusses the dreams of the greed of the Spanish in the conquest of America, always wanting more, insatiable. Money initially emerged as a reliable medium of exchange, so it would have to be:

  • Durable;
  • Fungible;
  • Portable;
  • And Reliable.

But money has value only when someone is willing to give something for it. It is like a promissory note; who accepts it as a trade exchange, trusts its eligibility and durability. It is a matter of trust.

The origin of the word "credit" comes from the Latin creed, which means "I believe". Money doesn't make the world go round, but it drives things around the world.

The author then explains the importance of inserting mathematical methods, such as Fibonacci's, for commercial accounting. Italian cities have become fertile soil for financial development.

Trade emerged in ethnic relations and distinctions, as shown in Shakespeare's "Merchant of Venice." This book shows us three important things from the modern origins of financial lending:

  • The power of the lender;
  • The importance of judicial courts;
  • And ethnic vulnerability.

Thus, Niall addresses loan sharking rates, high-interest rates, violence, and abuse of power behind this process.

He gives a brief overview of the Medici's activities in the fourteenth century, especially by showing how they were legitimized over the years and their importance in the study of financial actions, especially foreign currency finance.

They were the first bankers to have hereditary effectiveness and to be able to act with a magnitude over present-day Italy.

After the Medici, a number of other major and revolutionary financial institutions emerged, such as the Amsterdam and Stockholm Foreign Exchange Banks, in addition to lending and transactions, practicing financial reserves.

Another prominent institution was the Bank of England, which soon established a partial monopoly on banknote issuance. Spain, which didn't immediately realize that money was already based on credit rather than precious metals, didn't improve its economy.

There was a financial innovation with the different banks emerging in Europe and North America, especially after the industrial "boom". Innovations such as transatlantic trade or rural banks.

Another development was the creation of Savings Banks, which played a key role in stabilizing the world economy at the turn of the century. Accelerated bank growth spawned crises like the Great Depression in the US in 1929. There was only a real decrease in the number of banks in 1993.

The gold standard lasted until 1971 when the secular link between money and the precious metal was broken. The United States of America views bankruptcy as an inalienable right. Therefore, they see failure as part of the process for economic success.

However, 98% of bankruptcy filings are defined as non-commercial. The biggest factor is insolvency. Monetary expansion and globalization of markets (securities, equities, insurance, and real estate) are fundamental causes of insolvency.

Although these factors exist, the author argues that the world without money is worse than the world with money. Mainly based on the comparison between capitalist and socialist governments.

Economic problems are caused by the lack of institutions capable of managing the economy efficiently and with full control. But the biggest problem came when the rise of banks was followed by the expansion of bond markets and the abuse of loans.

Overview: Human servitude

Here, the author discusses the bond market which affects us in two ways:

  1. Much of what we set aside for old age is invested in the bond market;
  2. The immensity of the bond market makes it possible to establish long-term interest rates.

Thus it's so sublime that it can dictate the policy of governing a state. Throughout history, states have made huge debts with war events. War funding has been provided since the Italian Renaissance.

Italian city-states have contributed to the rise of bond markets by borrowing from citizens themselves to finance wars in exchange for the granting of bonds.

This also occurred, except for its particularities, in France, Spain, the Netherlands, and England. These loans became a mountain of debt rising over Europe as a whole.

At that time, Nathan Mayer Rothschild, named by the author as the Bonaparte of Finance, founded the world's largest bank in the nineteenth century in London.

Another milestone in this context was the Battle of Waterloo, a battle with two-sided financial aspects:

  1. For France was based on looting;
  2. On the British side was debt-based.

Rothschild's smuggling experience was harnessed by the British.

The Rothschilds already had a ready-made banking network of several locations within the family.

Nathan articulated and engineered bond and gold sales at the end of the Waterloo War taking advantage of the general panic, being "one of the boldest deals in financial history".

The Rothschilds have become more feared than loved. They maintained Jewish family unity in marriages and junctions and, with their influence, questioned anti-Semitism.

In the secession war in the United States, the Confederation sought financial support from the Rothschilds to defeat the North, but they were denied. In this context, Confederate bonds were sold by southern cotton as collateral.

They lost strength by the fall of New Orleans and the new world cotton markets. In Latin America, the bond market crisis had already begun in 1826, especially in Argentina.

Nonpayment of bond debts created above all economic blockages.

That's where another figure comes in: the Rentiers. They received interest in government bonds, which formed an elite interconnected by social, political, and economic factors.

The Rentiers significantly diminished their domination after the first World War inflation. One way to understand hyperinflation at the end of this war is to see defeat as a kind of state failure, a political phenomenon.

There is always a bet placed on buying a bond. To explain further, Niall Ferguson gives us an overview of hyperinflation around the world, showing that there are no resources that can withstand poor financial management.

Contemporary inflation has declined and bonds have surfaced for a few reasons:

Overview: Inflating Bubbles

Here, some aspects of the stock market are listed by Ferguson:

  • Formations of enterprise and companies;
  • The desire of people to participate in the actions;
  • The stock exchange as a product of the human psyche, with its inconsistencies and variations;
  • The stages of stock market actions are varied;
  • There are some striking characters involved in actions such as neophytes (first-time investors) and con artists;
  • There are asymmetries between those who are "outside" and "inside" the process;
  • And especially the bubbles that are sets of actions within the stock exchanges.

The author contextualizes the evolution of the major shareholder companies, especially in the financial sector, between the late 16th and early 17th centuries.

The stock market was born within a few years of the difference of the stock companies because as soon as public offerings of shares appeared, a secondary market for their purchase and sale also emerged.

John Law of Edinburgh proposed solutions to the problems faced by France after Louis XIV's spending on wars. He wanted to revive economic confidence in France by creating a public bank like the one in Holland, but with the specificity of being able to issue paper money.

Law had a plan to turn government debt into stock. He attracted many Parisians "well-off" and was eventually appointed general controller of France.

Law bet on his intuitions, but his actions were absolutist and tyrannical, which led him to prison twice.

The Mississipi stock bubble exploded and resonated across Europe, eventually delaying France's economic development. Stock market crises have their basis in the political and economic crises that preceded them.

As an example, the author shows that the crisis of 1929 has insurgency in the crisis of western products at the end of the first World War. Financial market movements tend to have large drops and rises in the extremes, which are called fat tails.

In 1990, the technology/internet bubble emerged on the stock exchange. Niall brings several "ups and downs" of companies that generated stocks and many of them fell into bankruptcy statistics.

One such company is the Enron industry, whose chief executive Kenneth Lay's story comes close to that of John Law.

The idea was to create an energy bank for intermediation between suppliers and consumers, but like Law, this was a fraud system based on market manipulation. After all, dishonest companies can only exist due to an irrational market and vice versa.

Overview: The risk-return

In this chapter, we will learn a little more about the history of risk management because of the unpredictability of life and the facts around us.

The author cites the inefficiency of the insurance market after the New Orleans disaster. This system combined private enterprise with government risk action and ultimately left payers "to be at a loss".

They also declared the areas as insurable for non-renewal of policies. The fundamental principle of insurance should be to save before probable future adversity.

Insurance is a branch of commerce dates, according to some early 14th century scholars, to both property and life.

But there was no theoretical basis for risk assessment, these bases appeared only in the 16th century, more under the influence of mathematicians than traders, such as:

  • Probability;
  • Life expectancy;
  • Certainty;
  • Normal distribution;
  • Utility;
  • Inference.

After World War II, insurance companies were allowed to invest in the stock exchange. Companies should use statistics to forecast disbursements for each year, as the number of policyholders matters.

There will always be people out of insurance, either for economic reasons or for carelessness. Then there are compulsory state-created insurance systems, such as social security, that grew long after World War I.

The State's performance in insurance guarantees structures for the population-based on birth and mortality rates. It also guarantees and configures the political systems of a given society.

In addition to insurance and pension, you can purchase a guarantee, funds, futures contract, eliminating price-related risks. But in order to be guaranteed, money is needed above all, those who don't have it are not guaranteed. It is a one-way bet.

Overview: Insurance like houses

Property and stock in the real estate market are fundamental marks in our culture and economic history. From an early age, we are taught to value the real estate industry, especially in the "English speaking world".

Residence ownership was once the privilege of an aristocratic elite and passed on in hereditary fashion. It is now more widespread in other classes with the decline of the aristocracy and has become security for borrowing, which the author sees as a problem.

The democratic concept of property ownership was developed above all in America, following many manifestations and claims of urban spaces.

Government incentives to purchase real estate and apply for loans were key hallmarks of this process, in which real estate empires were formed.

There are some differences in ownership with other forms of assets, such as:

  • Houses need maintenance as they degrade over time;
  • They are usually more expensive to convert to currencies;
  • They are less volatile.

In some places where the delay to get the deed of the house is long, the property becomes a dead capital. A constant balanced income is the only true security for the author.

Overview: From Empire to Chimerica

The biggest threats to the financial system today come from global economic centers rather than emerging markets. This is especially due to the globalization and integration of international markets in a world with less regulated borders.

The beginning of the twentieth century was fundamental to foreign investment because of the improvement of technologies, especially in the media. Also at this time, there was an apparent improvement in the fiscal positions of governments around the world.

However, the advances of the first era of globalization were halted by World War I, and it took an entire generation to rise and materialize after the 1960s. At the end of the war, a new financial structure was planned with the following aspects:

  • Progressive freedom of capital movement across borders;
  • Fixed exchange rate;
  • Independent monetary policy.

These precepts were established more clearly and effectively from forthcoming international agreements. There was a flourishing of the so-called "economic gunslingers" who mainly took advantage of the US imperialization of dollar taxation and supremacy.

Computers, since the early 1980s, have been transforming the financial markets. The memory of the market is short, and it is unpredictable with all its variants.

China has the fastest-growing economy in the world and has so far managed to avert crises common to other emerging markets. "Chimerica" is the junction of China plus America, a partnership that has managed to lower global interest rates, mainly as a result of loans.

What do other authors say about it?

In "The Intelligent Investor", Benjamin Graham explains how to invest in stocks and the characteristics of a stock market investor: discipline and consistency.

The author Jill Schlesinger, in her book "The Dumb Things Smart People Do With Their Money", warns the reader: financial advice must come from the right people. If you have problems with money, it is advisable to seek a financial advisor to help you plan your spending.

Finally, to reflect, Tony Robbins, in his book "Unshakeable", says many people make money but don't feel better. Some of the richest people in the world live in constant fear of losing everything. They feel dissatisfied when they wake up in the morning. Is this wealth? To feel really rich, you need to take care of your emotions.

Okay, but how can I apply this to my life?

  • Think about how much you value money in your daily life: Do you believe that it somehow contributes to the frantic importance the world gives to money nowadays?
  • Are your financial relationships totally secure and reliable?
  • Imagine a world where money does not exist, how would trade be made?
  • When walking the streets observe the number of banks that exist in your neighborhood;
  • Count in one day how many financial transactions you make;
  • Note the class differences that exist in your city, would this be resolved only with economic redistribution?
  • Reflect on the role of the state in the economic problems of the place where you live;
  • Think if you are safe from any possible catastrophe;
  • Study about international conflicts mainly caused by money.

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Book 'The Ascent of Money'

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